In the absence of a contractual agreement, an employee is free to solicit customers from his former employer unless trade secrets are involved or fraudulent methods are employed.
In determining whether a trade secret exists, New York courts consider the following factors: “(1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.” Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 407 (1993).
To state a claim for misappropriation of trade secrets, the plaintiff must allege “that it possesses a trade secret, and that defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means.” Novus Partners, Inc. v. Vainchenker, 32 Misc 3d 1241(A) (Sup Ct, NY County 2011) (internal quotation marks and citation omitted). Even if a trade secret is established, it is necessary “to sufficiently allege that defendants used those trade secrets to gain an advantage over plaintiffs.” Twin Sec., Inc. v. Advocate & Lichtenstein, LLP, 113 A.D.3d 565, 565 (1st Dept. 2014).
Thus, solicitation of an employer’s customers by a former employee is not actionable unless the customer list could be considered a trade secret or there was wrongful conduct by the employee such as physically taking or copying the employer’s files. Former employees can use their recollection of information about customers, and such recollected information is not considered confidential for purposes of enforcing trade secrets. See Buhler v. Maloney Consulting, 299 A.D.2d 190 (1st Dep’t 2002).
A customer list will only qualify as a trade secret if the company can establish that it made a substantial effort to keep the information confidential and the information is not otherwise readily available. Therefore, trade secret protection will not attach to customer lists when the alleged confidential information is readily ascertainable from sources outside the former employee’s business. See Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F. Supp. 2d 489 (S.D.N.Y. 2011).
For example, in Sasqua Grp., Inc. v. Courtney, 2010 U.S. Dist. LEXIS 93442 (E.D.N.Y. 2010), an executive search consulting firm specializing in the recruitment and placement of professionals in the financial services industry brought suit against a former employee claiming misappropriation of trade secrets. According to the company, when the defendant was an employee, she had access to the company’s customer database. The database contained client contact information, individual candidate profiles, contact hiring preferences, employment backgrounds, descriptions of previous interactions with clients, resumes and other information. However, the former employee testified that “virtually all personnel in the capital markets industry … have their contact information on Bloomberg, LinkedIn, Facebook or other publicly available databases.”
So the key issue the court focused on was whether the information sought to be protected as a trade secret was known outside the business or readily ascertainable. The court held that although an employer’s customer list may have been a trade secret years ago, “the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information in 2010 is a very different story.” The court further concluded that the information publicly available “exceeded the amount and level of detail contained in the [company] database.” Additionally, the court sided with the former employee on the issue of whether the company undertook reasonable measures to protect the secrecy of the alleged trade secrets. As the court stated, “[the company] failed to take even basic steps to protect the secrecy of the information contained in its database.”
If you have any questions as to whether certain information is protectable as a trade secret, please contact a New York City employment attorney.